Boeing plans to raise up to $25 billion in bid to boost liquidity

Boeing plans to raise up to $25 billion as the beleaguered plane maker seeks to shore up its balance sheet and withstand a prolonged strike that has hit production hard in the past month.

The company filed a so-called shelf as a precursor to a possible equity increase, according to a regulatory filing on Tuesday. Boeing also said it had a new credit agreement in place for $10 billion.

“This universal shelf registration provides flexibility for the company to seek a variety of capital options as needed to support the company’s balance sheet over a three-year period,” it said.

The credit facility provides “additional short term access to liquidity as we navigate through a challenging environment”, Boeing said. The company has not drawn on this facility or its existing credit revolver, it added.

Boeing shares whipsawed in premarket US trading and were down 0.3 per cent as of 6.53am in New York.

The company aims to stave off potential downgrades from Moody’s Ratings and S&P Global Ratings, which have both said they could cut Boeing’s credit grades to junk status. That would boost the company’s interest costs almost instantly and make Boeing a less attractive investment for some funds.

Boeing revealed last week that it has only a small buffer on top of the $10 billion of cash and short-term securities it needs to avoid slipping to junk status. The strike by members of a machinist union in the Pacific north-west, a crucial hub of Boeing aircraft production, is costing the company more than $1 billion a month. even after cost-saving moves, according to an estimate from S&P last week.

The strike is only one of several challenges facing a company that has been suffering all year. In January, a door-size hole was blown in the fuselage of an airborne 737 Max, forcing the company to slow production to fix problems with its manufacturing process. Its stock is heading for its worst annual performance since the 2008 financial crisis and Boeing said last week that it planned to cut 10 per cent of its workforce, which is about 17,000 people.

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Rating review

Bloomberg reported in early October that Boeing was looking to raise at least $10 billion of equity, with the company talking with advisers to explore options. Reuters reported last week that banks have pitched the company a series of possible instruments, including preferred equity and mandatory convertible securities, that are treated as equity-like by ratings firms.

The plane maker has said avoiding junk status is a key ambition. It would be the biggest US corporate borrower to be stripped of its investment-grade ratings and join junk bond indexes in the case of a downgrade, flooding the high-yield market with a record volume of new debt to absorb.

Downgrades to junk from two of Boeing’s three major credit graders would leave much of its $52 billion outstanding long-term debt ineligible for inclusion in investment-grade indexes.

Boeing is due to report its earnings on October 23, the first time chief executive Kelly Ortberg will preside over the release. Boeing will record $5 billion in combined charges for its two largest businesses when it formally reports the numbers, the company said in a surprise announcement on Friday.

Besides the defence and space charges, Boeing will book additional costs for pushing back the delivery date for its 777X model once again, leaving its largest wide-body aircraft with a delay of about six years.

BofA Securities, Citibank, Goldman Sachs Lending Partners and JPMorgan Chase Bank acted as joint lead arrangers and joint book managers on the new loan. Citibank is administrative agent and BofA, Goldman and JPMorgan were co-syndication agents.